On February 1, 2013, the Centers for Medicare and Medicaid Services (“CMS”) released a long-awaited final rule on “Transparency Reports and Reporting of Physician Ownership or Investment Interests” (the “Final Rule”), which was published in the February 8, 2013 Federal Register. The Final Rule implements Section 6002 of the Affordable Care Act – the so-called “Physician Payments Sunshine Act” – which requires that applicable drug and device manufacturers report payments or other transfers of value to physicians and teaching hospitals to the Department of Health and Human Services.
The rule finalizes requirements for applicable manufacturers to report annually on certain payments or other transfers of value to covered recipients. In addition, the rule clarifies how applicable manufacturers should report and characterize payments or other transfers of value, including rules for research payments and indirect payments provided to a covered recipient through a third party. The rule also finalizes the processes and requirements for applicable manufacturers to submit their reports to CMS, including the specific data elements required to be included in the reports and the report format. The effective date of the Final Rule is April 9, 2013. However, under the final rule, applicable manufacturers do not have to begin collecting the required data until August 1, 2013, and they do not have to report the data to CMS until March 31, 2014.
Understanding "Applicable Manufacturers"
Applicable manufacturers are required to submit reports to CMS regarding payments or other transfers of value made to covered recipients (physicians and teaching hospitals). Under the Final Rule, an “applicable manufacturer” is defined as an entity that is operating (includes selling) in the United States and that falls within one of the following categories:
(1) An entity that is engaged in the production, preparation, propagation, compounding, or conversion of a covered drug, device, biological, or medical supply (“covered product”) for sale or distribution in the United States (or a territory of the U.S.); or
(2) Any entity under common ownership or control with an entity in paragraph (1) of this definition, which provides assistance or support (defined as “necessary or integral”) to such entity with respect to the production, preparation, propagation, compounding, conversion, marketing, promotion, sale or distribution of a [covered product].
A covered product under the final rule includes prescription drugs and medical devices marketed under a 510(k) or premarket approval (PMA) for which payment is available under a Federal health care program.
CMS interprets the scope of the final rule to cover the following types of entities:
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Type of Manufacturer
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Reporting Implications
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Any manufacturers engaged in the production, preparation, propagation, compounding, or conversion of at least one covered product and operating in the United States (includes both companies having a physical presence in the United States and foreign companies conducting activities in the U.S., such as selling, marketing, or distributing covered products even if those products are manufactured abroad) whose total (gross) revenue for the previous fiscal year from the covered product(s) represents ten percent or more of total revenue
- Applies regardless of whether the entity holds the BLA, NDA, ANDA, PMA, or 510(k)
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Required to report all payments/transfers of value to physicians or teaching hospitals not only for the covered product(s) but also for any of the company’s uncovered products
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Any raw material or component supplier, whose materials or components may be later incorporated into a covered product (but not by the supplier)
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Not required to report unless they are under common ownership with an applicable manufacturer and assist such manufacturer with the production, preparation, propagation, compounding, conversion, marketing, promotion, sale, or distribution of a covered product
In the event a supplier of raw materials is under common ownership with an applicable manufacturer, it will be subject to the reporting requirements for entities under common ownership
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Any manufacturers selling, marketing, distributing at least one covered product whose revenue from such covered product(s) for the previous fiscal year represents less than ten percent of total (gross) revenue
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Required to report only payments/transfers of value that were related to the covered product(s)
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Contract manufacturers that produce a covered product only under a written agreement but are not involved with its sale, marketing, or distribution
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Required to report only payments/transfers of value that were related to covered products
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Parents, subsidiaries, sister corporations, and other entities that share common ownership of five percent or more with an entity producing, selling, marketing, or distributing a covered product
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Required to report payments/transfers of value if such entities:
- Are necessary or integral to the production, marketing, promotion, sale, or distribution of a covered product (required to report only payments/transfers of value related to covered products); or
- Make an “indirect” payment or other transfer of value to a covered recipient on behalf of a manufacturer (required to report all payments/transfers of value to physicians or teaching hospitals not only for the covered product(s) but also for any of the company’s uncovered products)
Not required to report any payments/transfers of value if the parent, subsidiary, sister corporation, or other commonly-owned entity is not necessary or integral to manufacturing the related company’s covered product (and is not otherwise manufacturing or contract manufacturing covered products itself)
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Under CMS’s interpretations, therefore, manufacturer’s obligations are triggered based on their connection to a covered product. For example, a manufacturer selling only one covered product, that represented ten percent or more of its revenue, would be required to report all payments or transfers of value to covered recipients (including for uncovered products). However, this broad requirement has limited reporting obligations for certain entities, such as contract manufacturers only producing covered products under contract. With respect to related corporate entities, the reporting obligations are determined by their connection to the covered product (i.e., are they necessary or integral) and common ownership. For example, if a parent company owned a drug manufacturer, producing a covered product, and five percent of the active pharmaceutical ingredient (API) corporation that supplied its drug manufacturer, then the API corporation would be subject to the final rule and would have to report payments/transfers of value related to the covered product.
Manufacturers would also be subject to the final rule for any indirect payments, which are interpreted by CMS as payments that a manufacturer “requires, instructs, or directs to be provided to a covered recipient [through a third party], regardless of whether the applicable manufacturer specifies the specific covered recipient.” Thus, related corporate entities not necessary or integral to the “production, preparation, propagation, compounding, conversion, marketing, promotion, sale, or distribution” could still be impacted by the final rule. With respect to third party payments, some aspects of continuing medical education (CME) programs are excluded from being considered an indirect payment. Specifically, speaker compensation is excluded provided that: (i) the event meets the accreditation standards of one of several listed accreditation bodies, (ii) the applicable manufacturer does not pay the speaker directly, and (iii) the applicable manufacturer does not select the speaker.
Exclusions
The Final Rule contains exclusions for remunerations that would not be considered reportable:
· Payments or Other Transfers of Value of Less Than $10.
· Educational Materials that Directly Benefit Patients or are Intended For Patient Use.
· Discounts and Rebates.
· In-kind Items for the Provision of Charity Care.
· Product Samples.
· Short Term Loans of Covered Devices.
Report Submission
Only manufacturers that have payments or other transfers of value to disclose for the previous year must register and submit reports. Applicable manufacturers must register individually, even if they intend to be part of a consolidated report, which can encompass related corporate entities, submitted by another manufacturer. Registration must occur prior to the deadline for data submission (March 31, 2014). Following data submission (either the original or in the form of a change or update), an authorized representative (chief executive officer, chief financial officer or chief compliance officer) will be required to submit a signed attestation certifying the timeliness, accuracy, and completeness of the data. Information submitted will be available on a publically accessible website.
For each payment and other transfer of value, the following information is required: manufacturer name; covered recipient (with identifying information, including specialty and NPI); date, form, and nature of the payment or transfer; name(s) of the related covered drug, device, biological, or medical supply, as applicable (including NDCs, if any); name of entity that received the payment or other transfer of value, if not provided to the covered recipient directly; whether the payment or other transfer of value was provided to a physician holding ownership or investment interests in the applicable manufacturer (yes/no); and a statement providing additional context (optional).
In the proposed rule, CMS had suggested that reports be prepared electronically in a comma-separated value (CSV) format. In consideration of received comments, CMS stated that it will publish additional information regarding format and report templates in the future, however the agency did not provide any detailed commentary on specific formats it will request for report submissions.
Penalties
Failure to submit the required information is punishable by a civil monetary penalty (CMP) of at least $1,000 but no more than $10,000 for each payment or other transfer of value or ownership or investment interest not reported as required, not to exceed $150,000 in the aggregate. Knowing failure to report as required is punishable by a CMP of at least $10,000 but no more than $100,000 for each payment or other transfer of value or ownership or investment interest, not to exceed $1,000,000 in the aggregate.
For further information regarding the Final Rule, please see our full advisory (organized by topic with a link to the full text of the Final Rule itself) at http://www.alston.com/Files/Publication/7dd8e3ec-efee-438b-925a-379c9b66211f/Presentation/PublicationAttachment/ca4b8944-9aaa-49ae-b32f-442a4780eacb/health-care-advisory-physician-payment-sunshine-act-final-rule.pdf.
Julie Tibbets is a partner in the Food, Drug & Device/FDA Practice of Alston & Bird LLP where she focuses her practice on advising manufacturers of drugs, biologics, and medical devices on marketing, medical affairs and health care professional related matters. This publication is intended to be informational and does not constitute legal advice regarding any specific situation. This material may also be considered attorney advertising under court rules of certain jurisdictions.